Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from an order of the Superior Court of Los Angeles County, Joseph R. Kalin, Judge, Los Angeles County Super. Ct. No. BP084633.
Poindexter & Doutre, Inc., James P. Drummy, Jeffrey A. Kent and Robert D. Schwartz for Plaintiffs and Appellants.
Law Offices of Julian A. Pollok and Julian A. Pollok; Greines, Martin, Stein & Richland and Marc J. Poster for Defendant and Respondent.
WOODS, J.
INTRODUCTION
This appeal is from part of the order of the Los Angeles Superior Court pertaining to a trust instrument commonly known to the litigants as the Dorothea J. Cassady Trust established May 19, 1989 (hereafter referred to as “the trust”). The deceased trustor, Dorothea J. Cassady will hereafter be referred to as Dorothea. The matter was tried by the court, the Honorable Joseph R. Kalin presiding, on December 13, 14, 15 and 19, 2005, in a trial which Judge Kalin characterized as involving a “dysfunctional family.”
The persons involved in this litigation share a common last name (Cassady) with the exception of Patricia A. Danna. In order to avoid confusion and for convenience first names only are used in this opinion and not out of any disrespect for the litigants.
In a document entitled “certificate of interested entities or persons” filed in the Court of Appeal on June 6, 2007, the family members were listed by name and nature of interest as follows:
Patricia A. Danna (not appearing in appeal) – beneficiary of trust (1/4 interest);
Ralph Cassady (party) – beneficiary of trust (1/4 interest);
Peter Cassady (party) – beneficiary of trust (1/4 interest); and
Constance Cassady (party) – beneficiary of trust (1/4 interest.)
All four of the aforementioned persons are siblings and will be referred to by their first names as Patricia, Ralph, Peter and Constance, respectively, unless content or discussion hereafter requires otherwise.
Ralph is a member of the state bar of California and currently serves as the sole trustee of the trust, occasioned by the death of Dorothea, formerly a co-trustee.
In capsule format, the issues before Judge Kalin for resolution were contained in three petitions as follows:
1. Petition to Remove Trustee and to Appoint Successor Trustee (“Removal Petition”) filed by Constance on December 17, 2004, and joined in by Peter;
2. Petition for Review of Trustee’s Accounting and Beneficiaries’ Objections to Trustee’s Accounting, Request for Surcharge of Trustee and Other Remedies; Petition to Construe Provisions of Trust Instrument (“Review Petition”) filed by Constance on December 17, 2004, and joined in by Peter; and
3. Petition for Order Declaring Forfeiture of Rights of Certain Beneficiaries Because of Their Contest of Trust Provisions (“Forfeiture Petition”) filed by Ralph in his additional capacity as trustee of the trust on July 11, 2005, and joined in by Patricia.
The predominate dispute among the siblings involves a two story, four bedroom, single family dwelling in Westwood, California, built in 1931 where the trustor was living at the time of creation of the trust in 1989. In essence, the appealing siblings were disgruntled and unhappy that Ralph had let the residence lay “fallow” for 16 years, allegedly in breach of his fiduciary duties as trustee to make the trust asset productive by way of sale and distribution to the beneficiaries of the trust or to rent the premises thereby acquiring income for augmentation of the trust corpus.
The court took the matter under submission and on April 18, 2006, denied the Removal Petition; surcharged Ralph personally in the sum of $11,292.50 made payable to the trust; denied the remainder of the Review Petition; denied the Forfeiture Petition; and imposed costs against Constance and Peter, jointly and severally, in favor of Ralph, as trustee.
On June 16, 2006, Constance and Peter filed a timely notice of appeal, but appealed only that part of the order of the trial court “denying the relief sought in the Petition for Review of Trustee’s Accounting and Beneficiary’s [sic] Objections to Trustee’s Accounting, Request for Surcharge of Trustee and Other Remedies,” specifically declining to appeal from the remainder of the order.
For the reasons hereafter stated, we affirm the order of the trial court.
FACTUAL AND PROCEDURAL SYNOPSIS
Decedent and beneficiaries.
Dorothea died on May 23, 1989, leaving four surviving children, namely, Ralph, Peter, Michael, and Patricia. Before her death, Dorothea established the trust by executing a Declaration of Trust dated May 19, 1989, with Dorothea and Ralph as co-trustees. Pursuant to the trust provisions the trust became irrevocable on Dorothea’s death with Ralph becoming the sole trustee, in which capacity Ralph has been serving ever since. Michael died on July 7, 2001, and his wife, Constance, has succeeded to his interest in the trust.
Distribution provisions in the trust.
Appellants, Peter and Constance, maintain in their joint opening brief on appeal that the trust is a “distribution trust” as opposed to a “principal and income trust” thereby limiting the trustee’s discretion and requiring Ralph to marshal all assets of Dorothea committed to the trust corpus, pay all debts, last illness and funeral expenses and to distribute what is remaining to the four remainder beneficiaries. Peter and Constance further maintain Ralph violated his duties as trustee by failing to take effective action to dispose of the major asset in dispute, namely the family home hereafter described, during his tenure as sole trustee, for a period of 16 years, which continues to the present time.
Description of the trust realty.
The description of the primary trust asset is not subject to any significant dispute by the litigants. It can accurately be described as the Cassady family home where Dorothea and her husband resided prior to his demise and where the disputatious siblings were reared. It consists of two stories, four bedrooms and is a single family dwelling located in Westwood, California, where Dorothea was residing at the time of her demise. The home had been built in 1931 and was in need of substantial repairs.
The litigation.
Pleadings Summarized.
In December of 2004, Constance, as successor in interest to her husband, Michael, who died in 2001, filed petitions to have Ralph removed as trustee and a new trustee appointed. Constance also sought to have Ralph’s accounting reviewed and asked that Ralph be surcharged for failing to distribute the trust assets in accordance with the trust provisions after the death of Dorothea. Constance further asked the court to construe certain provisions of the trust to determine that the distribution of the personal property under the trust is controlled by a 1988 codicil to Dorothea’s will, rather than by the 1980 list referred to in the trust. Constance later filed a supplemental petition containing further allegations that Ralph had administered the trust for “seemingly his own benefit,” and failed to deal impartially with the other beneficiaries and failed to apply his skills as an attorney in administering the trust. It is noted by this court that Constance is the sister of Peter’s wife and that Ralph maintains Constance filed her petitions at the urging of Peter. Peter joined in the petitions filed by Constance as supplemented.
Patricia filed objections to the petitions of Constance and Peter as supplemented, as did Ralph.
The pleadings raised numerous issues among the parties, among which was the issue of whether the petitions of Peter and Constance to construe certain provisions of the trust violated the trust’s “no contest” clause.
Trial Testimony and Exhibits Summarized.
In December 2005, the court heard testimony from the three surviving siblings, Ralph, Peter and Patricia. The court also received testimony from Constance, Mark Varnum, a general contractor, and from Michael Mavadat, a real estate broker. Many exhibits, estimated to be several dozen, including numerous letters from Peter to his siblings, were admitted into evidence. The parties submitted extensive briefing, both before and after trial. Among other things, Ralph contended he should not be surcharged because he acted reasonably and in good faith, deferring sale of the house was authorized and reasonable and resulted in a better return for the trust, he did not breach any fiduciary duty and appellants, Peter and Constance had acquiesced in his actions by waiting too long to seek a surcharge.
A cash sale of the house by Ralph for $1.26 million in its “as is” condition, with no contingencies, was approved by the probate court in October 2005.
Minute Order of the Court “Ruling On Submitted Matter,” Following Trial.
Following the December 2005 trial by the court, as a court of equity sitting in probate, and after considering subsequent briefing, on March 3, 2006, the court issued a minute order entitled “Ruling on Submitted Matter.” In pertinent part, the minute order states:
“[T]his was a dysfunctional family which resulted in multiple disagreements which prolonged the sale of the real property, the major asset of the Trust, and thus the ultimate distribution of the Trust assets. . . . [¶¶]
“The responsibility for not selling the real property or using it to generate income must be spread across the entire family. The conduct of Peter Cassady and his failure to agree with any suggestions constantly delayed administration of the trust property. [¶] . . .
“Peter Cassady whose conduct caused the ongoing disputes now wishes to benefit from his own disruptive conduct. He refused to reach an agreement to repair the property and he refused to agree to sell the property as is. [¶] . . .
“Peter refused to reach any agreement on the disposition on renting or sale of the real property until there was a full agreement on the disposition of the personal property which never occurred.
“It appears it was reasonable that to maintain family harmony, Ralph Cassady did not act unilaterally with [sic] trying to obtain the agreement from the rest of the family. [¶] . . .
“Petitioners argue that Ralph Cassady took no action regarding the real property for several years but the fact that Petitioners waited 16 years to file this Petition is evidence that they acquiessed [sic] to the actions of Ralph Cassady.
“At the time of the death of Dorothea Cassady in 1989, the real estate market was flat from that date until the property was sold, the real estate market appreciated resulting in a significant increase in the value of the real property and the real property sold for $1,260,000.00. Ralph Cassady had offered to buy out the other heirs, which offer was refused.”
“The Court does not find any breach of fiduciary [duty] by Ralph Cassady.”
The court found that Ralph improperly expended trust funds in the amount of $11,292.50 on cable television, telephone and parking permits at the home following the demise of Dorothea and Ralph should reimburse the trust from his personal funds for this amount. This appeal does not include any dispute as to this ruling for reimbursement by Ralph.
Formal Order of the Trial Court.
A statement of decision was not sought by any party. The court did not issue one on its own initiative. On April 18, 2006, the court issued its formal order, succinctly stating:
“1. The Removal Petition is denied;
“2 The Trustee, Ralph Cassady, shall be, and hereby is, surcharged the sum of $11,292.50, which shall be paid to the Cassady Trust, and in all other respects the Review Petition is denied;
“3. The Forfeiture Petition [regarding Peter’s and Constance’s violation of the “no contest clause”] is denied; and
“4. Ralph Cassady, as Trustee, shall recover costs from Constance L. Cassady and Peter W. Cassady, jointly and severally.”
On June 16, 2006, Peter and Constance filed their timely notice of appeal from part of the April 18, 2006, order of the trial court.
DISCUSSION
In the Absence of a Statement of Decision, on Appeal All Presumptions favor the Order of the trial Court.
The trial court issued a minute order entitled “Ruling on Submitted Matter.” As correctly maintained by Ralph in his brief on appeal, this was not a statement of decision. We agree with Ralph that at most the document was a memorandum opinion. Ralph correctly cites Taormino v. Denny (1970) 1 Cal.3d 679, 684 for the proposition that “A memorandum opinion is not a decision. Although it may purport to decide issues in the case, it is merely an informal statement of the views of the trial judge. It does not constitute findings of fact.”
As previously noted, after the court issued its minute order, no one requested a statement of decision. The court then followed up by signing a formal order denying the requested surcharge against Ralph for alleged improper delay in the sale or rental of the home.
However, in the absence of a statement of decision, the appellate court is relegated to following the rule that all presumptions on appeal are in favor of the order of the trial court. As asserted by Ralph, this court must presume that the trial court made whatever findings were necessary to sustain its order, citing the following decisions as authority: Tusher v. Gabrielsen (1998) 68 Cal.App.4th 131, 140 [“we must assume that the trial court made whatever findings are necessary to sustain the judgment and we indulge all presumptions in favor of the order”]; Tyler v. Children’s Home Society (1994) 29 Cal.App.4th 511, 529 [“Where there is a conflict [in the evidence], we will infer findings in favor of the judgment, because no statement of decision was requested”]; Michael U. v. Jamie B. (1985) 39 Cal.3d 787, 792-793; and Fladeboe v American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 58-62 [where the plaintiffs failed to request a statement of decision, the appellate court must infer that the trial court, after giving the plaintiffs a full and fair opportunity to try their declaratory relief action, made every factual finding necessary to support its decision]. As a practical matter, as suggested by Ralph, even if the probate court had intended its minute order to be a statement of decision, all intendments would have to be afforded not only in favor of its express findings but also in favor of any additional implied findings that support its decision. (SFPP, L.P. v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.)
Ralph further urges that as a further consequence, this court also must presume the probate court “considered every pertinent argument and resolved each one consistently with it minute order,” citing Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1451 as authority. Ralph additionally argues that it cannot be presumed the probate court intended to limit its reasons for denying the requested surcharge to those stated in its minute order, citing In re Marriage of Ditto (1988) 206 Cal.App.3d 643, 648 as authority where it is stated “In other words, we look only to the judgment to determine error.” We find Ralph to be legally accurate in his quest to have this court consider further consequences as a result of the absence of a statement of decision by the trial court.
Substantial Evidence Standard of Review Applies.
Peter and Constance contend this court should undertake an independent de novo review of the probate court’s order because the “salient” facts are not in dispute, but at the same time providing this court with no convincing authority.
But it is patent that Peter and Constance have carefully selected the evidence they alone deem “salient” and have disregarded other evidence and inferences from the evidence that favor the probate court’s order. Under the applicable substantial evidence review standard, this court must view the evidence in a light most favorable to the judgment and resolve all evidentiary conflicts in favor of the order. (In re Conservatorship of Davidson (2004) 113 Cal.App.4th 1035, 1058, disapproved of in Bernard v. Foley (2006) 39 Cal.4th 794 on an unrelated issue involving statutory interpretation of Probate Code section 21350.)
Substantial Evidence Supports The Order Denying The Petition to Surcharge Ralph.
Appellants’ Burden At Trial And On Appeal.
In the probate court, Constance and Peter had the burden of establishing the prerequisites to the requested surcharge against Ralph pursuant to Evidence Code section 500 which generally provides “Except as otherwise provided by law, a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting.” (See also Beck Development Co. v. Southern Pacific Transportation Co. (1996) 44 Cal.App.4th 1160, 1205.) While a fiduciary such as a trustee may have the initial burden of establishing the correctness of his accounts, a fiduciary does not have the burden of disproving charges of dereliction of duty. (Neel v. Barnard (1944) 24 Cal.2d 406, 420-421; Rivero v. Thomas (1948) 86 Cal.App.2d 225, 236.)
On appeal, Ralph and Constance have the burden of affirmatively showing error in the denial of their petition. (City of Merced v. American Motorists Ins. Co. (2005) 126 Cal.App.4th 1316, 1322-1323.)
The holding of the California Supreme Court in Neel v. Barnard, supra, 24 Cal.2d at page 418 appears to this court to be most pertinent and bears repeating before we set forth the evidence which we find supportive of the order of the trial court as follows: “Even if, as plaintiffs contend, the properties could have been sold for enough to pay the debts and leave a substantial surplus, defendant’s failure to sell would not necessarily convict him of bad faith or breach of duty. It was not necessarily unreasonable for him to believe that the market would improve, and the court may well have concluded that plaintiffs shared that belief. There was no evidence that plaintiffs ever urged defendant to close the properties out at the best prices obtainable or that they were not satisfied to rely upon his judgment. It is true that they had no right to control defendant’s action, but the fact that they made no protest against his failure to make sales indicates that they did not then question either his good faith or his good judgment. Furthermore, mistaken judgment is not necessarily unreasonable judgment and of course neither is the equivalent of bad faith.”
With this instruction provided by our high court, we now review the evidence which we find supportive of the judgment.
Reasonableness and Good Faith of Ralph
Without conceding any portion of its argument that substantial evidence supports the order of the trial court, Ralph maintains that even if there was a breach of fiduciary duty by him, Probate Code section 16440, subdivision (b) grants the probate court the discretion to excuse a trustee from liability for an alleged breach of duty if the trustee acted reasonably and in good faith. Ralph asserts that substantial evidence supports what Ralph refers to as the court’s “implied findings and exercise of discretion here.”
Probate Code section 16440 provides in its entirety as follows: “(a) If the trustee commits a breach of trust, the trustee is chargeable with any of the following that is appropriate under the circumstances: [¶] (1) Any loss or depreciation in value of the trust estate resulting from the breach of trust, with interest. [¶] (2) Any profit made by the trustee through the breach of trust, with interest. [¶] (3) Any profit that would have accrued to the trust estate if the loss of profit is the result of the breach of trust. [¶] (b) If the trustee has acted reasonably and in good faith under the circumstances as known to the trustee, the court, in its discretion, may excuse the trustee in whole or in part from liability under subdivision (a) if it would be equitable to do so.”
We now focus on the reasonableness of Ralph in deferring sale of the family home. Constance and Peter argue that the trust mandated what they refer to as “a prompt distribution” of the house upon the death of Dorothea. However, an examination of the trust instrument fails to reveal such a mandate. Using the date of Dorothea’s death as a starting point, no time limit is set forth for the ultimate distribution of assets at all. Ralph retorts, and we agree, that the time to make distribution was implicitly left to Ralph’s discretion with the attendant consequences if that discretion is abused.
Ralph further relies on Probate Code section 16220. Ralph alleges that his actions in deferring sale of the home were fully consistent with this statutory provision.
Probate Code section 16220 states: “The trustee has the power to collect, hold, and retain trust property received from a settlor or any other person until, in the judgment of the trustee, disposition of the property should be made. The property may be retained even though it includes property in which the trustee is personally interested.”
Relying further on the statutory provisions contained in the Probate Code, Ralph states that even if the trust instrument had expressly required immediate distribution of all assets, which Ralph fervently denies is the case, the probate court had the authority under Probate Code section 15409, subdivision (a) to authorize a modification of the trust agreement to meet changed circumstances, such as altered market conditions. Probate Code section 15409, subdivision (a) provides: “On petition by a trustee or beneficiary, the court may modify the administrative or dispositive provisions of the trust or terminate the trust if, owing to circumstances not known to the settlor and not anticipated by the settlor, the continuation of the trust under its terms would defeat or substantially impair the accomplishment of the purposes of the trust. In this case, if necessary to carry out the purposes of the trust, the court may order the trustee to do acts that are not authorized or are forbidden by the trust instrument.”
In Ralph’s argument, he wraps up his reliance on statutory authority by citing Probate Code section 16201 as follows: “This chapter does not affect the power of a court to relieve a trustee from restrictions on the exercise of powers under the trust instrument.”
Apparently, prompted by the fact that Ralph did not seek instructions from the probate court before engaging in actions that deferred the sale of the home for an extended period of time, which this court opines would have been the better course of action, Ralph states “For purposes of ruling on a petition to surcharge, any conduct the court could approve in advance, it could also approve in retrospect.” This comment by Ralph is conspicuous by reason of any absence or any citation to authority by Ralph. Be that as it may, we again note that the court was sitting as a court of equity in exercising its probate powers and Ralph’s statement is commensurate with the power of a court of equity to insure justice is accomplished in a given case, including this one.
Armed with the foregoing statutory and decisional authority, particularly emphasizing the holding of our high court in the Neel v. Barnard decision, we set forth the evidence from this record, which we find to be substantial and supportive of the decision of the trial court.
The real estate market was in the “doldrums” at Dorothea’s death and continued in this condition or further declining for several years thereafter; the deferral of sale by Ralph, whether intentional or as a consequence of the disputatious character of the siblings and beneficiaries, a threefold increase in value occurred by the time of the eventual sale; at the time of the sale the market was “so hot” that Ralph was able to sell the house for cash “as is” with no contingencies; repairs, restorations and renovations to the property was circumvented, which was estimated to impact the trust assets by thousands of dollars; renting of the house would have required extensive repairs to place the house in a condition to be rented, estimated by an expert contractor to be in the neighborhood of $344,400; upon renting of the house, personal property would have to be stored elsewhere entailing the expense of packing, moving and storage arrangements for an entire house full of personal property, including fragile memorabilia and other like items which could cost as much as $2,500 per month as of the early part of the 1990s and even more after that time; the reasonable rental value of the house, according to Constance and Peter, was no more than $3,000 in 1989 and $4,500 in 2005, it is a reasonable inference from the record that the cost to make the property habitable would be in the neighborhood of $150,000; the cost of broker commissions for leasing the house would have been an additional cost of rental; and some of the siblings were not on good speaking terms and did not want to be partners in the leasing of the house.
Probate Code section 16047 sets forth the standard of care of a trustee and lists in subdivision (c) the various nonexclusive circumstance that are appropriate for the trustee to consider in investing and management of the trust assets, among which is subdivision (c)(1) stating “General economic conditions.”
Consent to management of Trust By Acquiescence.
Constance and Peter maintain that any acquiescence they may have manifested over the years cannot be deemed a defense to a breach of trust claim, citing an opinion by the California Supreme Court in Ferro v. Citizens Nat. Trust & Savings Bank (1955) 44 Cal.2d 401, 414. Ralph appears to concede the principle stated thusly in Ferro to Constance and Peter, but rebuts the principle by maintaining that consent, however, is a defense, citing Probate Code section 16463 which provides that “a beneficiary may not hold the trustee liable for an act or omission of the trustee as a breach of trust if the beneficiary consented to the act or omission before or at the time of the act or omission.” The following decisions clearly indicated that case law is in accord with the principle set forth in Probate Code section 16463 and Ferro: Weightman v. Hadley (1952) 113 Cal.App.2d 598, 608; Malinow v. Dorenbaum (1942) 51 Cal.App.2d 645, 652; and De Vrahnos v. George (1962) 203 Cal.App.2d 210, 223.
Ralph extracts language from In re Bauer (1936) 17 Cal.App.2d 426 for the principle that consent can be demonstrated by conduct as well as by words. In Bauer, a trust beneficiary charged the trustee with improper self-dealing in trust property. But the appellate court found there was an exception to the rule against self-dealing when the beneficiary permits the trustee to act stating “[W]hen the beneficiary, having capacity to contract, with the full knowledge of the motives of the trustee and of all other facts concerning the transaction which might affect his own decision, and without the use of any influence on the part of the trustee, permits him to do so,” (id. at p. 430) and finding further that whether the trustee fell within the scope of the self-dealing exception was a question of fact to be decided from the evidence.
The record reflects that Ralph told Constance and Peter that he was going to hold on to the house until the real estate market improved and the siblings could agree on whether to rent or sell, renovate or leave the house “as is”; the siblings met many times and discussed how the assets of the trust were to be disposed of in hopes of reaching a consensus; and Ralph’s offer to buy anyone’s interest in the house at fair market value was not accepted except for Peter who belatedly took Ralph up on his continuing offer.
We find it a reasonable inference from the aforementioned evidence that Ralph assumed his siblings saw no need for an immediate sale of the house and that they consented to waiting for final distribution of this item until the real estate market presented a more favorable circumstance or they reached a consensus on how to dispose of the home.
Delay of Constance and Peter In Objecting To Ralph’s Conduct.
We now focus on Ralph’s claim that the unreasonable delay of Peter and Constance in challenging his actions pertaining to the house constituted an additional equitable ground for denying the surcharge relief requested by them. Ralph relies on the equitable doctrine of laches in support of his contention that Constance and Peter waited “fifteen years” after the death of Dorothea to seek a requested surcharge against him in his handling of disposition of the house, which Ralph contends provides him with a laches defense. Ralph is correct in his assertion that a probate court applies principles of equity in aid of its functions and laches is an equitable defense, citing Estate of Bissinger (1964) 60 Cal.2d 756, 764 and McCarthy v. Mitchell (1942) 54 Cal.App.2d 173, 178 as authority. We agree with Ralph that the probate court could reasonably conclude and presumably did conclude that this period of delay in seeking a surcharge against him would be inequitable to warrant a surcharge against him for losses that allegedly built up over the years during which the house substantially increased in value, while Constance and Peter in effect sat on their rights.
DISPOSITION
The order of the trial court denying the requested surcharge against respondent is affirmed. Respondent is awarded costs of appeal.
We concur: PERLUSS, P.J., ZELON, J.